The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[muppet]

Frontbench spokesperson Leo Varadkar said banks should not be given any more capital without renegotiating with bondholders.

"Any bank coming to us looking for more money is going to have to show how they are going to impose losses on their junior bondholders, on their senior bondholders, and on other creditors before they come looking to us for any more money. Not another cent."



Read more: http://www.irishexaminer.com/ireland/kfeyeyidcwgb/rss2/?sms_ss=yahoomail#ixzz1IHJ7EPF9


I thought this stress test amount *was* on top of the €35b. So basically, This extra €24b or whatever stupid number it is now, is going to be committed without involving the bondholders. Or am I missing something entirely?

It is part of the €35 Billion earmarked for banks as part of the IMF/EU bailout. There was €10bn up front, up to €25bn more dependent on the stress tests (we know now it will be a max (haha) of €24bn after yesterday. FG promised no more on top of the. Yes it was a clever political ploy because people didn't know the difference but it is not a broken promise.

So the 'stress tests' have miraculously shown that the 'up to' amount was just enough. How convenient.

I knew that FG had more or less said that what's done is done wrt the €35b, but I was under the illusion that this €24b was on top of that amount. IF that is not the case, then I withdraw my remark, although I am getting less convinced by the day that there will be any difference, sadly.

I think the game is on behinds the scenes.

This is a decent report from Channel 4:

http://blogs.channel4.com/faisal-islam-on-economics/missing-elements-of-irish-bank-deal-suggest-eurozone-itself-is-under-severe-stress-test/13995

I just got quite an interesting internal account of what happened between Irish leader Enda Kenny and President Sarkozy/ Chancellor Merkel at the Euro Summit two weeks ago. Finance ministers decided that Michael Noonan's attempt to renegotiate the bailout deal (lower interest rates) was a matter for heads of state so kicked upstairs to the European Summit.

Enda Kenny turned up and "he was very cocky. He sat down and told everybody 'this package isn't working, we are a new government, it has to change'. Both the content and the attitude was a stark contrast to the much more humble approach of [Georges] Papandreou, [the Greek PM]. It had a terrible impact. Merkel and Sarkozy were very upset. They said: "We went to our parliaments and got billions and billions at huge political cost – forget it"

We need to get them very very scared. Greeks citizens are close to anarchy while the EU are happy with their humble leader. That sums up why the EU is failing for me.

However we have only one weapon, and it wipes all of us out. It has to be used very wisely.

[supersarsfields]

Where is the FG chief drum beater Mayogodhelpus now? No defence of your beloved party and it's leader??

He's very angry. He's just counting to ten to cool down and he'll be along.

[muppet]

Some prescient tweets from one Nick Leeson:

popular consensus is against banks too big too fail yet ireland is set to reverse this trend by amalgamating all banks into two

The stress tests will virtually be redundant the moment they are published, Ireland is continually drifting towards the 'stressed' level.

newspaper reports today suggest that todays injection of cash into irish banks will draw a line under the financial crisis - not a chance

rapidly declining growth forecasts, increasing unemployment, limited if any liquidity in the banking system, this isnt a line being drawn

[Bogball XV]

The Vincent Brown show from last night should be watched by anyone with an interest in any of this bailout guff - excellent stuff.

[seafoid]

http://www.irishlifeandpermanent.com/~/media/Files/I/Irish-Life-And-Permanent/Attachments/pdf/presentations/pcar-plar-31032011.pdf

Loss calculation on ROI Residential Mortgage is the key difference; this is driven by
Significantly higher probability of default assumed
No forbearance resulting in accelerated repossessions, and
Higher losses on repossessed loans

what is this going to mean for people in trouble with their mortgages ? 

[Bensars]

The Vincent Brown show from last night should be watched by anyone with an interest in any of this bailout guff - excellent stuff.

Thought it was very good(although didnt see start). Thought Bruton was shown up badly by knit picking on the smallest items the economist was saying while totally ignoring the argument.  It was a case of paisley politics, where if i shout you down you'll move on to another topic

[seafoid]

This was on irisheconomy

michael burke Says:
April 1st, 2011 at 9:55 pm
It is a fiction to suggest that the effects of these bailouts will be either a properly functioning banking system or one that can make any positive contribution to growth. But then the bailouts have never been designed for either purpose- but simply to make whole investors who would otherwise be obliged to enjoy the fruits of the financial markets they have extolled so long.
I'm only surprised there remain such boosters for what would in any other circumstance be regarded as a fraud perpetrated on a state borrower and its taxpayers.
Blackrock identified a further €40bn in potential losses- but this may be an underestimate, with less than €1bn identified in British mortgage lending.
Yesterday the BoE expressed its 'surprise' at increasing default rates once more, both mortgages and small businesses- but the wonder is any central bank that is surprised at growing defaults when government spending cuts suck the life out of the economy, investment is being cut, and incomes are falling.
How easily are the neo-Thatcherites surprised at the effects of their own handiwork- both sides of the Irish Sea.

[muppet]

http://www.thepost.ie/post/pages/p/story.aspx-qqqt=THE-INSIDER-qqqs=themarket-qqqs=computersinbusiness-qqqid=55276-qqqx=1.asp

Are private pensions up for grabs?

The focus on the enormous holes in the balance sheets of our banks has distracted attention from some of the alternative solutions being adopted by other EU countries to help resolve their financial crises.

These solutions are of interest to investors in private pension funds, as the crisis measures have included seizing private pension assets to plug the gaping holes in both bank and government balance sheets.

Take Hungary, for example. In February, it cancelled $7.5 billion worth of government bonds after grabbing privately-managed pension funds to cut the country's indebtedness.

The appropriation of the assets came despite protests from leading pension fund managers, as well as legal threats.

The raid was carried out by Hungary's Debt Management Agency, which is roughly equivalent to our own National Treasury Management Agency.

László Buzás, the deputy chief executive officer of the agency, told news agency Bloomberg that by cancelling the government bonds, the government would reduce Hungary's debt by 5.5 percentage points from about 80 per cent of gross domestic product.

Hungary followed the example of Argentina, which in 2001 confiscated about $3.2 billion of pension savings before the country stopped servicing its debt.

The Argentinian government also nationalised the $24 billion industry two years ago to compensate for falling tax revenue after a 2005 debt-restructuring. The February raid on private sector pension funds was a measure of how desperate the financial situation in Hungary had become.

The idea of raiding state pension funds has long been popular with European governments seeking to plug the holes in their exchequers' finances.

Our own government has plundered the €24 billion state owned National Pension Reserve Fund to help cover the costs of recapitalising our bust banks. It has also imposed a pension levy on public sector workers, and increased the age at which the state pension will be paid out.

The effect of increasing the retirement age from 65 to 68 is that people will be missing out on state pension payments of about €1 billion a year.

The affected cohort of 65-year-olds will forgo a state pension of €12,000 a year for three years once the retirement age is increased to 68,an effective loss of €36,000 per person.

With our state pension reserves heavily depleted and our senior citizens soon being expected to work till the age of 68, the cash-strapped government is increasingly turning its attention to other sources of funding.

While no one is suggesting that the government has any plans to nationalise our private pension funds, both the former and the current administrations have been dreaming up wheezes to use private sector pension funds to help prop up the public finances.

The now-departed Fianna Fáil/Greens government introduced the concept of a sovereign annuity bond, which is to be issued by the state to Irish pension funds.

Once the technicalities have been ironed out, this will pave the way for private pension money to be invested in high yielding Irish government bonds.

The pensions industry lobbied for the move because it saw the higher returns available as a way of plugging the holes in private sector pension schemes.

But the risk is that, if the Irish sovereign were to default (as some influential commentators expect), private pensioners would lose out.

The new government is also eyeing private-sector pensions as a source of revenue. Fine Gael's election manifesto called for the introduction of a 0.5 per cent tax on all private pension funds.

The party said during the election campaign that it would publish a jobs budget with a cost of €381 million within 100 days of entering government, which would be funded by the early payment of the first tranche of the 0.5 per cent levy on pension funds.

The pensions industry opposes this proposal.

Jerry Moriarty, chief executive of the Irish Association of Pension Funds (IAPF),ha s argued that applying a levy to the pension fund industry would only make matters worse at a time when many pension schemes have been struggling to plug the massive holes in their schemes.

The shortfall in the private sector defined benefit schemes was estimated at €13 billion at the end of 2008.

Since then, trustees, employers and members have been focusing on reducing those deficits. ''To now levy those funds only makes a bad situation worse," he said.

It has been suggested that those schemes could cut the benefits of an estimated 65,000 pension members to take account of the levy - a move which would, in Moriarty's words,' 'penalise the prudent''.

But the scale of the EU's banking and fiscal crisis is now so enormous that it is entirely possible that governments will find themselves penalising the prudent in an effort to shore up the public finances.

This column has previously highlighted how the Danish government decided that some depositors in Amagerbanken, a small, insolvent Danish bank should contribute to the cost of bailing it out.

The depositors learned last month that they would lose 41 per cent of any amount they held on deposit over the statutory guarantee limit of €100,000.The depositors were effectively forced to take a 41 per cent haircut alongside the bondholders.

The Hungarian and Danish governments' moves serve as yet another reminder that the financial crisis in Europe is now so deep that EU governments are giving consideration to measures which were unthinkable only a few short years ago.

[Declan]

Gene Kerrigan: Transfer of power now truly complete
The policies imposed on the last coalition will continue into the foreseeable future, says Gene Kerrigan
Sunday April 03 2011

Welcome to Occupied Ireland. We haven't been invaded, there was no siege, but after last Thursday I trust the governing arrangements are crystal clear?

In recent weeks it wasn't just the banks that were stress tested -- the robustness of our democratic structures were assessed. And we saw the result. We are free to vote for a government, but it's a puppet government, a Vichy regime.

The power lies with a handful of unelected EU mandarins, and the proconsuls they appoint to look after the details. The policies imposed on the late unlamented Biffo administration will continue -- protect the bondholders, protect the euro, try to make up the difference by cutting services, wages and jobs. The jargon we must use to describe our rulers has been specified: "Our External Partners".

On Thursday, our elected parliamentarians began to understand the limits of their power. They were allowed to, for instance, censure Michael Lowry -- though they had to pay the price of listening to the man whine incessantly about how that nasty Judge Moriarty just took it into his head to victimise poor Mick.

While this was happening, the economic and fiscal straitjacket to be imposed on the citizens for the foreseeable future was handed down to the new Minister for Finance, Michael Noonan. Billions of euros could be saved by telling the bondholders their gambles with Sean FitzPatrick and the like failed -- tough luck. It's what we were told during the election campaign. But Our External Partners warn us: Do that and we'll collapse the Irish state.

And Fianna Fail's Brian Lenihan, who bears huge responsibility for the condition we're in, proudly announced that Noonan's "speech was the same speech I would have delivered", and he was right. As this column pointed out before the election -- the EU/IMF/FF/Green government had run its course. And the country would henceforth be run by the EU/IMF/FG/Labour coalition, in the interests of the German, French, UK and Irish bankers.

Last week, the most frank statement about this country's plight came not from any of our Leinster House blowhards. It came from a man named Muhamed El-Erian, one of the world's foremost capitalists. We will deal presently with the thoughts of Muhamed, but let's first nail down the reality of The Occupation.

No one better to outline this than Professor Patrick Honohan, governor of the Central Bank. While agreeing that what is happening "doesn't score highly on fairness", Honohan pointed out that the Government will be able to continue a process of negotiation with the EU. In short, the elected politicians are free to petition Our External Partners to make minor adjustments to their orders.

As for the €70bn we're gifting the bankers (in reality, somewhat more than €100bn), Honohan says, that "returning to growth will make that affordable". He believes, "If our economy goes well, if we get back to growth, get to full employment, then we can pay this easily."

How soon will we reach full employment, then? Well, the document produced by the Central Bank and Our External Partners predicts that if things go spectacularly well unemployment will fall to a steady 5.8 per cent by 2020. (For that to happen, unemployment would have to be 13.4 per cent this year -- it's already 14.7 per cent). If things don't go so well, the Central Bank and Our External Partners predict that unemployment won't go down to 5.8 per cent until 2028.

So, we must continue the policy of feeding borrowed billions to the zombie banks, and cutting income and services, for the next nine years (all going well). Or the next 17 years (all going not so well).

And as things get better, we can relax the austerity, enjoy the fruits of our hard labour, right?

Eh, no. According to Professor Honohan, "the arrangements with our European partners could over time be restructured in such a way that we give them a bigger share of our prosperity and our growth."

In short, if we make huge sacrifices and we work very, very hard and somehow achieve a new, true economic boom, the benefits of that won't go into better hospitals and schools, higher wages, civilised services and a better standard of living. It will continue to go into paying off other people's gambling debts.

To protect the European banks that recklessly lent to reckless Irish banks, a generation of Irish people -- who weren't even aware this was going on -- is to be sacrificed.

And all this assumes that the policies imposed by Our External Partners will work. And that savagely deflating an economy will lead to growth. Last week, economist Paul Krugman pointed out that the Irish Government "tried to reassure markets by imposing savage austerity measures on ordinary citizens . . . Since then, the interest rate on Irish debt has doubled".

In downgrading Ireland on Friday, Standard and Poor's warned investors that "sovereign debt restructuring is a possible precondition to borrowing from the European Stability Mechanism." Translation: to continue borrowing for zombie banks, the State may have to default on its own debts.

From the start, those of us on the Left pleaded for attention to be given first to the real economy -- but the mantra continued, fix the banks, fix the banks. A jobs stimulus was out of the question -- we don't have any money (throw another ten billion into the oul banks, there, Patsy).

Muhamed El-Erian is the CEO of Pimco, one of the world's biggest bond investors. Connected to Oxford, Cambridge and Harvard, he served 15 years with the IMF and wrote a prizewinning book on economics. More relevant, he oversees investment strategies involving trillions of dollars. In short, he's no Joe Higgins.

Last week, El-Erian told Bloomberg: "The only people doing their fair share right now -- in fact I would say they're doing more than their fair share -- are the taxpayers of Ireland who are having to go through a tremendous austerity, and the IMF and the EU that are putting in money. Most of the creditors so far have not gone through any burden sharing. It is remarkable. It is inadvisable. It is a political decision that has been taken. It surprises me. I do not think you can sustain that political decision."

In the same interview, El-Erian warned of how inequality engenders social unrest. He's no radical, he believes the current policies of protecting the rich while screwing the citizens will lead to destabilised societies. And that's bad for his business.

Another Pimco executive, Andrew Bosomworth, was quoted in the Irish Independent on Thursday. "Ireland is closing kindergartens to pay senior bondholders -- ethically that is a very questionable policy." The ethics of our government and Our External Partners are being questioned by some of the most aggressive capitalists on the planet.

Our leaders are constitutionally obliged to hold a referendum to seek permission for any substantial change in the treaties governing our relationship with Our External Partners. That relationship has now, without consulting the people, become one of master and servant. A vote for change meant nothing. The Oireachtas has been blatantly sidelined. Ethics don't count for much these days, but if democracy means anything there's an irrefutable case for a referendum on the package imposed without mandate on the citizens.

[thejuice]

http://www.bbc.co.uk/news/business-12993318

Portugal is officially asking for a bailout.

I suppose the only words are, "oh shit"

[seafoid]

The more the merrier. It is not just a case of national fecklessness. The Euro system is flawed.  Ireland has an interest in having more countries in bailout mode. 

[thejuice]

Indeed, but I think we're in for a bumpy ride as this continues.

[bailestil]

I don't understand how the Euro is still so strong against sterling.

Is sterling considered in a worse state than the Euro.

I assumed the Euro value will be in meltdown long before now.
Can anyone explain to me why?

Another summer of expensive holidays

[whiskeysteve]

I don't understand how the Euro is still so strong against sterling.

Is sterling considered in a worse state than the Euro.

I assumed the Euro value will be in meltdown long before now.
Can anyone explain to me why?

Another summer of expensive holidays

My limited understanding of it would be that the UK, via quantitative easing, has been printing money at a higher relative rate to Europe hence devaluing Sterling.

The Germans are reluctant to go down that route to avoid inflation.

[armaghniac]

The reason why the Irish carry on was so stupid was that they were acting as if they were in Britain, where inflation is called upon to reduce debt, rather than the Eurozone.